Shocking electricity prices follow deregulation

August 12, 2007

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Consumer groups say Dominion Virginia Power d, the state's No. 1 utility, spearheaded the legislation and is unfairly benefiting from it. It can keep 40% of excess profits and earn an especially high rate of return for building nuclear plants, renewable power or "clean coal" generators. And Dominion can still sell power into the region's competitive wholesale markets.

"(Dominion) called the shots," says Irene Leech, head of the Virginia Citizens Consumer Council, noting the utility has long been the top corporate contributor to state lawmakers. "They want the benefits of competition, but they don't want to take any risks."

Dominion CEO Tom Farrell vigorously denies ramming the bill through the Legislature and says the new incentives are needed to prod the company to be more efficient and build plants that don't contribute to global warming. During the rate freeze, he notes, Dominion had to write off $1.5 billion in fuel costs.

Other states can't revert to regulation because utilities have sold their power plants. So they're taking baby steps back. Connecticut and Montana recently agreed to let utilities again build plants, which can take at least four years to complete. The extra supply is designed to temper price increases in the wholesale market. Officials in Maryland, Ohio and Michigan are considering similar proposals.

Pros and cons of a return to regulation

Yet officials say scrapping deregulation brings its own perils. Bill Massey, a former FERC commissioner and a lawyer for Compete, a group of wholesalers, utilities and customers, says free markets have led to more efficient and innovative plants. Now, rivals are best able to offer conservation and energy efficiency services to cut global warming emissions, he says.

Allen of Constellation warns that "ratepayers will be on the hook for cost overruns" if utilities such as BG&E are permitted to once again build and own plants. And David Crane, CEO of NRG Energy nrg, worries that independent suppliers like NRG could be squeezed out if utilities that buy electricity can also produce it.

Unmoved by such arguments are consumers struggling under huge electric rate increases. Jackson, the Illinois customer, welcomes the price cuts included in the proposed plan to beef up state oversight.